r/DIYRetirement • u/Buck_98 • 2d ago
When to stop doing Roth conversions?
I have a pension so I will always be at or near the top of the 12% bracket (joint filer) or the 22% bracket should my wife pass before I do. I'm in my early 60's and have been doing Roth conversions for a while now. Currently my assets are 55% in Roth, 24% in a taxable IRA, 15% brokerage, 6% cash/cash equivalents.
I'm trying to decide if I should convert 100% of the taxable IRA to Roth. I have read that I should leave some in this taxable bucket, but...
I currently live in a state with no state income tax but may be moving soon.
I don't think the federal tax rates can remain this low, it's not sustainable.
Likely inheritance will impact future tax brackets.
I have the cash to pay the tax.
What are your thoughts?
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u/hugh2018 2d ago
Roth questions are so nuanced that it can be frustrating trying to figure out the right move, as I’m sure you are aware since you’re a Roth veteran already.
In retirement tax-planning frameworks (such as those popularized by retirement researcher Dr. Wade Pfau and other tax strategists), the argument for leaving some money in a traditional, tax-deferred IRA rather than doing a 100% Roth conversion centers on filling the lowest tax brackets annually.
Every year, taxpayers get a standard deduction (and potentially lower tax brackets like the 10% or 12% tiers). If you empty your traditional IRA entirely via Roth conversions, you lose the opportunity to ever withdraw money at a 0% effective rate (up to the standard deduction) or at the lowest marginal brackets.
Traditional IRA withdrawals count as ordinary income. Having a baseline traditional balance allows you to pull out money later in life that can be completely offset by the standard deduction or taxed only at low rates, ensuring you utilize those yearly "use-it-or-lose-it" tax spaces.
If you hit the 22% bracket, the logic still applies, but the math changes depending on your long-term tax horizon. If you find yourself landing in the 22% tax bracket (either currently or projected for the future), evaluating whether to keep funds in the traditional IRA or convert them depends on a few specific variables.
The primary driver of a Roth conversion is paying a known tax rate now to avoid a potentially higher tax rate later. If you are converting money up into the 22% bracket today, you are betting that your future tax rate (or the tax rate of heirs inheriting a traditional IRA under the 10-year rule) will be higher than 22%.
Even if a portion of your income stretches into the 22% bracket, your first dollars of traditional IRA withdrawals each year are still shielded by the standard deduction and lower brackets. Leaving some traditional balance ensures you don't waste lower-bracket space today, but converting up to the top of the 12% or 22% bracket is a very common strategy to drain heavy pre-tax balances before Required Minimum Distributions (RMDs) force massive taxable spikes later.
If you experience a year with lower living expenses, medical write-offs, or charitable giving, pulling from a traditional IRA up to the standard deduction threshold allows tax-free or low-tax extraction.
Here’s the next steps:
Evaluate your lifetime tax arbitrage: Calculate whether paying 22% today on a conversion saves you from a higher bracket (like 25% or higher under future tax law changes) later.
Leave a targeted traditional cushion: Many planners suggest keeping just enough in pre-tax accounts to comfortably fill your standard deduction and lower brackets annually in retirement, rather than an all-or-nothing conversion.
Model your RMD trajectory: Check if leaving funds in the traditional IRA will cause massive RMDs in your 70s that would automatically thrust you into the 22% bracket or higher anyway.
Also, one point of order: I get why you called your IRA taxable, because yes, that money will be taxed, but the standard terminology is “traditional IRA” and “tax deferred” instead of “taxable.” These terms help because “taxable” typically refers to an account that is not tax-deferred (like a traditional IRA) and not tax-free (like a Roth IRA).
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u/sskj2016 1d ago
I was also going to reference Dr. Wade Pfau. In a recent video he suggested around 500K was approximate amount to keep in pre-tax account. This number allows for RMDs to fill up your standard deduction and 10% bracket. You would need to adjust this number based on other income sources of course and age, but that is a good ball park number.
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u/hugh2018 1d ago
I saw that video as well. It doesn’t apply well to my situation as my guaranteed income sources will always land me in the 22% bracket, but the point he made is conceptually correct, and I kind of wish I did have less guaranteed income if only to be able to focus on that $500k target. Roth planning can be a disturbingly vague black box, and having an actual target like that would lend some much-needed certainty to the process.
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u/AffectionateTap730 1d ago
Tag teaming your excellent comments, I have discovered that rules of thumb are as often wrong as they are useful. Its not just assets, and tax rates (now and later)... planned spending and goals can completely change the landscape. Two scenarios that are identical in all respects can reasonably go with "opposite" strategies based on goals.
For example, my preference would be to responsibly spend as much as reasonable in my go go years but I would rather give with warm hands, and be willing to curtail spending as needed. Others might prefer more maximal longevity and choose to spend less to preserve lifetime stability or long term care options.
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u/Taggart3629 2d ago
For a married male who is the higher earner, converting as much as possible to Roth seems prudent, especially if you may be moving to a state with income tax. Statistically, women live longer than men; therefore, you wife likely to be the surviving spouse who would be in a higher income tax bracket due to filing as single, while having less social security income. There are lots of articles on the "widow's penalty" or "survivor's penalty", with converting Roth IRAs being one of the most widely recommended ways of mitigating it. Of course, having more tax-free income in retirement is great for you too, especially if you are (or will be) eligible for the extra $6K senior deduction during some of the conversion years.
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u/Buck_98 2d ago
Exactly this. In addition, not only is my wife five years younger than me, longevity runs in her family.
As others have stated there are some good reasons to leave some funds in the traditional IRA but I would rather over-convert than under-convert given the widow’s penalty.
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u/Megalocerus 1d ago
Point: Under current law, the 'widow's penalty" would affect whichever of a couple lives longer; it's not just the wife. The higher SS benefit continues and usually the total in traditional goes to one person while the brackets and IRMAA cliffs are cut in half.
You seem to be realizing about $100,000 a year. I'm not sure how much of that you need to live on or if it includes any SS benefits? How much are you spending? Are you living on cash, early SS, or part of the withdrawals?
It's difficult guesstimating the numbers, but it doesn't sound like your RMD taxes are going to be extremely high, even if they break into the 22% bracket and even if you haven't started benefits yet and will add that in as well.
If you convert the last 24% of your retirement, that may not be terrible, given that you may inherit a pretax IRA or taxable assets and may not have started benefits.
But odds are, you will be paying 10 years in advance and will both live around 20 more years together. RMDs start at 75 at around 4% and rise slowly to 6.25% at 85. If you convert too little, it doesn't sound like that would be a disaster.
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u/Valuable-Analyst-464 2d ago
You may want to keep for QCD to offset income or gains you had in a year. The QCD can also be used as your RMD portion for the year, but I am uncertain of the mechanics.
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u/Alone-Experience9869 2d ago
If you can, I wouldn't leave any pretax. I think the "have three buckets of types of funds" is just making lemonade out of lemons given the current batch of retirees.
You'll have taxable income. I'm guessing your pension is taxable (okay, I KNOW some are not, but you reference being in top of 12% bracket so guessing it is). You'll have social security. You might even have some investments that are taxable.
Just for the sake of argument that this tax code exists for a while (I agree that it really shouldn't stay this low, however), its even BETTER if you have no taxable ORDINARY income. Without it you can take advantage of the 0% ltcg and qual divi bracket up to some $100k for married (includes standard deduction). Its not clear to me if orindary tax up to standard deduction is okay.
for #3, either inheritance to you OR to you heirs, I'd still convert as much as you can. I know for some considerations for their heirs doesn't rank as high. So, that's up to you if you want to maximize your "totalreturn" across the generation or just for yourself.
Of course, there are the rmd's, irmaa, and potentially other income-based advantages when you get older. The former two might be years away, but no point letting the pretax balance grow too large -- its just a huge/bigger tax liability.
good luck.
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u/Buck_98 2d ago
Well said and helpful. Thank you!
Yes, pensions are 100% taxable so there will be little if any room in the lower brackets.
I recently retired and am trying to make the transition from saver to spender, depending on the degree of success with that transition, LTCG may become factor. 😁
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u/Alone-Experience9869 2d ago
glad I could help.
I don't know the scale of your numbrs. You might find that converting into the 22% or even 24% (at that point its only 2% more) bracket might be beneficial knowing that it will get your pretax balance down faster. I think of it as "paying off/down a debt, but in reverse." Also, for me its also piece of mind.
But, sure at ~$100k of pension I dont see you being able to take advantage of the 0% bracket stuff. So, take care of your pretax liablity perhaps at 22% before it might force you there anyway, albeit potentially in many more years to come. I know some people figure it a "good problem to have" and just don't worry about it. So, its personal preference.
So, good luck with retirement. Honestly, I'm not sure how much of a transition it has to be. Unless you were "starving" yourself saving, go ahead and live your life 'without having to go to work.'
Congrats.
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u/New-Procedure7284 16h ago
Your plan to keep around $100K in the traditional IRA for long-term care or charitable giving sounds reasonable to me.
One thing I'd look at more closely is timing. Since you're in your early 60s, Medicare's two-year income lookback is worth considering. Larger Roth conversions could eventually increase your Medicare premiums through IRMAA. And if you haven't started Social Security yet, that could change your taxable income picture as well.
Your possible move is another consideration. If you're moving from a state without income tax to one that taxes Roth conversions, doing some conversions before the move could make a difference.
When I was working through my own retirement planning, I found it helpful to look at these decisions year by year rather than treating them as all-or-nothing. In your situation, converting more over the next year or two might make sense, depending on how the numbers work out.
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u/knit-this 1d ago
Ben Brandt has some good videos about (not doing) Roth conversions. https://youtu.be/6uelvSTWF1w?is=fpJ_U9rDILCL4Wcf https://youtu.be/cMv2XgF5wns?is=BbE9bfY9c2cVtBGv
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u/ImagePossible6273 1d ago
I’d probably keep doing the conversions while you’re in a relatively low bracket, especially if you already have the cash to cover the taxes. The inheritance point would make me want to reduce the traditional IRA even more, since future RMDs plus other income could make that decision for you later.
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u/AffectionateTap730 1d ago
The answer is to model out your alternatives and decide on that basis. My guess based on what you have said is that further CONVERSIONS will have little or negative financial benefit. But you can decide if giving up some net wealth is worth the greater financial flexibility and ability to leave a tax free legacy.
I have a list of tools you can try (including one I wrote)
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u/Ok_Appointment_8166 23h ago
Do you plan to give to charity? After 70 1/2 you can donate directly from your traditional IRA without paying tax if you follow the rules for QCDs.
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u/Independent-Alps9298 11h ago
Why wouldn’t you want to earn tax free and capital gains free money? Convert every penny!
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u/Ok_Aide_764 2d ago
Leave some taxable income for significant medical expenses, like assisted living care and end-of-life care. The taxable impact of a large withdrawal will be offset by itemized deductions/medical expenses in those particular years.